##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number: 0-22187
 RENAISSANCE LEARNING, INC.
  Wisconsin
    
    39-1559474(State or other
    
    (I.R.S. Employerjurisdiction of incorporation)
    
    Identification No.)
 2911 Peach Street
P.O. Box 8036
Wisconsin Rapids, Wisconsin
 54495-8036
 (715) 424-3636
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Small reporting company o(Do not check if a smaller reporting company)
 o þ
  Outstanding atClass
    
    July 31, 2008Common Stock, $0.01 par value
    
    29,121,142




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##### 



RENAISSANCE LEARNING, INC.
 INDEX TO FORM 10-Q
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at June 30, 2008 and December 31, 2007
    
    
    1Condensed Consolidated Statements of Income for the Three Months and Six Months
Ended June 30, 2008 and 2007
    
    
    2Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2008 and 2007
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    6Item 3. Quantitative and Qualitative Disclosures About
Market Risk
    
    
    10Item 4. Controls and Procedures
    
    
    11PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    11Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    11Item 4. Submission of Matters to a Vote of Security Holders
    
    
    12Item 6. Exhibits
    
    
    12Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
 June 30,
    
    
    December 31,2008
    
    
    2007(In Thousands, Except Share and PerShare Amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,992
    
    
    $
    7,337Investment securities
    
    
    7,534
    
    
    
    8,136Accounts receivable, less allowance of $1,100
    
    
    15,999
    
    
    
    8,791Inventories
    
    
    5,076
    
    
    
    6,273Prepaid expenses
    
    
    1,909
    
    
    
    2,197Income taxes receivable
    
    
    1,591
    
    
    
    1,450Deferred tax asset
    
    
    4,425
    
    
    
    4,406Other current assets
    
    
    164
    
    
    
    300Total current assets
    
    
    47,690
    
    
    
    38,890Investment securities
    
    
    5,808
    
    
    
    8,982Property, plant and equipment, net
    
    
    9,688
    
    
    
    10,578Deferred tax asset
    
    
    1,466
    
    
    
    1,587Goodwill
    
    
    47,248
    
    
    
    47,065Other intangibles, net
    
    
    5,332
    
    
    
    5,579Capitalized software, net
    
    
    358
    
    
    
    452Other non-current assets
    
    
    199
    
    
    
    167Total assets
    
    $
    117,789
    
    
    $
    113,300LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,984
    
    
    $
    2,011Deferred revenue
    
    
    36,319
    
    
    
    35,675Payroll and employee benefits
    
    
    5,579
    
    
    
    4,184Other current liabilities
    
    
    3,769
    
    
    
    3,563Total current liabilities
    
    
    47,651
    
    
    
    45,433Deferred revenue
    
    
    3,043
    
    
    
    2,707Deferred compensation and other employee benefits
    
    
    1,593
    
    
    
    1,933Income taxes payable
    
    
    4,614
    
    
    
    5,104Other noncurrent liabilities
    
    
    254
    
    
    
    136Total liabilities
    
    
    57,155
    
    
    
    55,313Shareholders equity:Common stock, $.01 par value; shares authorized: 150,000,000;
issued: 34,736,647 shares at June 30, 2008 and December 31, 2007
    
    
    347
    
    
    
    347Additional paid-in capital
    
    
    52,341
    
    
    
    52,683Retained earnings
    
    
    104,778
    
    
    
    102,887Treasury stock, at cost: 5,637,487 shares at June 30, 2008;
5,703,450 shares at December 31, 2007
    
    
    (96,970
    )
    
    
    (98,123
    )Accumulated other comprehensive income
    
    
    138
    
    
    
    193Total shareholders equity
    
    
    60,634
    
    
    
    57,987Total liabilities and shareholders equity
    
    $
    117,789
    
    
    $
    113,300
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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (unaudited)
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Per Share Amounts)Net sales:Products
    
    $
    21,888
    
    
    $
    22,206
    
    
    $
    44,093
    
    
    $
    43,908Services
    
    
    6,159
    
    
    
    4,971
    
    
    
    13,340
    
    
    
    9,957Total net sales
    
    
    28,047
    
    
    
    27,177
    
    
    
    57,433
    
    
    
    53,865Cost of sales:Products
    
    
    3,964
    
    
    
    4,490
    
    
    
    7,999
    
    
    
    8,193Services
    
    
    2,568
    
    
    
    2,443
    
    
    
    6,330
    
    
    
    5,310Total cost of sales
    
    
    6,532
    
    
    
    6,933
    
    
    
    14,329
    
    
    
    13,503Gross profit
    
    
    21,515
    
    
    
    20,244
    
    
    
    43,104
    
    
    
    40,362Operating expenses:Product development
    
    
    4,268
    
    
    
    4,636
    
    
    
    8,301
    
    
    
    9,702Selling and marketing
    
    
    8,903
    
    
    
    8,835
    
    
    
    18,276
    
    
    
    18,240General and administrative
    
    
    3,429
    
    
    
    3,612
    
    
    
    7,557
    
    
    
    7,455Total operating expenses
    
    
    16,600
    
    
    
    17,083
    
    
    
    34,134
    
    
    
    35,397Operating income
    
    
    4,915
    
    
    
    3,161
    
    
    
    8,970
    
    
    
    4,965Other income, net
    
    
    172
    
    
    
    324
    
    
    
    340
    
    
    
    626Income before taxes
    
    
    5,087
    
    
    
    3,485
    
    
    
    9,310
    
    
    
    5,591Income taxes
    
    
    1,753
    
    
    
    1,307
    
    
    
    3,358
    
    
    
    2,096Net income
    
    $
    3,334
    
    
    $
    2,178
    
    
    $
    5,952
    
    
    $
    3,495Earnings per share:Basic
    
    $
    0.12
    
    
    $
    0.08
    
    
    $
    0.21
    
    
    $
    0.12Diluted
    
    $
    0.12
    
    
    $
    0.08
    
    
    $
    0.21
    
    
    $
    0.12Cash dividends declared per share
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.14
    
    
    $
    0.12
   -2-




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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 For the Six Months EndedJune 30,2008
    
    
    2007(In Thousands)Reconciliation of net income to net cash provided by operating activities:Net income
    
    $
    5,952
    
    
    $
    3,495Adjustments to arrive at cash provided by operating activities:Depreciation and amortization
    
    
    1,916
    
    
    
    1,913Amortization of investment discounts/premiums
    
    
    57
    
    
    
    26Share-based compensation expense
    
    
    619
    
    
    
    485Deferred income taxes
    
    
    101
    
    
    
    (1,145
    )Excess tax benefits from share based payment arrangements
    
    
    (26
    )
    
    
    Change in assets and liabilities, excluding the effects of
acquisitions and divestitures:Accounts receivable
    
    
    (7,208
    )
    
    
    (3,876
    )Inventories
    
    
    1,197
    
    
    
    (1,160
    )Prepaid expenses
    
    
    289
    
    
    
    311Income taxes
    
    
    (606
    )
    
    
    2,982Accounts payable and other liabilities
    
    
    1,693
    
    
    
    (345
    )Deferred revenue
    
    
    980
    
    
    
    5,010Other
    
    
    (252
    )
    
    
    161Net cash provided by operating activities
    
    
    4,712
    
    
    
    7,857Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (609
    )
    
    
    (1,591
    )Purchase of investment securities
    
    
    
    
    
    
    (20,729
    )Maturities/sales of investment securities
    
    
    3,420
    
    
    
    20,250Capitalized software development costs
    
    
    (142
    )
    
    
    Net proceeds from sale of property
    
    
    49
    
    
    
    566Net cash provided (used) by investing activities
    
    
    2,718
    
    
    
    (1,504
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    348
    
    
    
    8Excess tax benefits from share based payment arrangements
    
    
    26
    
    
    
    Dividends paid
    
    
    (4,063
    )
    
    
    (2,902
    )Purchase of treasury stock
    
    
    (86
    )
    
    
    (1,407
    )Net cash used by financing activities
    
    
    (3,775
    )
    
    
    (4,301
    )Net increase in cash and cash equivalents
    
    
    3,655
    
    
    
    2,052Cash and cash equivalents, beginning of period
    
    
    7,337
    
    
    
    5,953Cash and cash equivalents, end of period
    
    $
    10,992
    
    
    $
    8,005
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RENAISSANCE LEARNING, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Consolidation
  2. Basis of Presentation
  3. Earnings Per Common Share
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Basic weighted average shares outstanding
    
    
    28,764,740
    
    
    
    28,809,707
    
    
    
    28,761,951
    
    
    
    28,834,117Dilutive effect of outstanding stock options
    
    
    3,738
    
    
    
    1,370
    
    
    
    3,513
    
    
    
    3,530Dilutive effect of restricted shares
    
    
    87,919
    
    
    
    17,211
    
    
    
    84,090
    
    
    
    17,211Diluted weighted average shares outstanding
    
    
    28,856,397
    
    
    
    28,828,288
    
    
    
    28,849,554
    
    
    
    28,854,858
  4. Comprehensive Income
  5. Goodwill and Other Intangible Assets
   June 30, 2008
    
    
    December 31, 2007Gross
    
    
    Accumulated
    
    
    
    
    
    
    Gross
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    Net(In Thousands)Tradename
    
    $
    3,000
    
    
    $
    
    
    
    $
    3,000
    
    
    $
    3,000
    
    
    $
    
    
    
    $
    3,000Customer relationships
    
    
    4,150
    
    
    
    1,818
    
    
    
    2,332
    
    
    
    4,150
    
    
    
    1,571
    
    
    
    2,579$
    7,150
    
    
    $
    1,818
    
    
    $
    5,332
    
    
    $
    7,150
    
    
    $
    1,571
    
    
    $
    5,579
  -4-




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6. Recent Accounting Pronouncements
 Fair Value Measurements
 Business Combinations
 Determination of the Useful
Life of Intangible Assets Goodwill and Other Intangible Assets Business Combinations
 7. Share Based Compensation
    Weighted Average
    
    
    AggregateShares
    
    
    Value Per Share
    
    
    Intrinsic Value(In Thousands, Except Per Share Amounts)Balance at January 1, 2008
    
    
    250
    
    
    $
    14.16
    
    
    $
    3,498Granted
    
    
    52
    
    
    
    13.66Vested
    
    
    (29
    )
    
    
    14.04Balance at June 30, 2008
    
    
    273
    
    
    $
    14.08
    
    
    $
    3,056
  8. Dividends
  9. Subsequent Event
   -5-




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Results of Operations
       -6-




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net Sales:Products
    
    
    78.0
    %
    
    
    81.7
    %
    
    
    76.8
    %
    
    
    81.5
    %Services
    
    
    22.0
    %
    
    
    18.3
    %
    
    
    23.2
    %
    
    
    18.5
    %Total net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales:Products
    
    
    18.1
    %
    
    
    20.2
    %
    
    
    18.1
    %
    
    
    18.7
    %Services
    
    
    41.7
    %
    
    
    49.2
    %
    
    
    47.4
    %
    
    
    53.3
    %Total cost of sales
    
    
    23.3
    %
    
    
    25.5
    %
    
    
    24.9
    %
    
    
    25.1
    %Gross profit:Products
    
    
    81.9
    %
    
    
    79.8
    %
    
    
    81.9
    %
    
    
    81.3
    %Services
    
    
    58.3
    %
    
    
    50.8
    %
    
    
    52.6
    %
    
    
    46.7
    %Total gross profit
    
    
    76.7
    %
    
    
    74.5
    %
    
    
    75.1
    %
    
    
    74.9
    %Operating expenses:Product development
    
    
    15.2
    %
    
    
    17.1
    %
    
    
    14.5
    %
    
    
    18.0
    %Selling and marketing
    
    
    31.8
    %
    
    
    32.6
    %
    
    
    31.8
    %
    
    
    33.9
    %General and administrative
    
    
    12.2
    %
    
    
    13.2
    %
    
    
    13.2
    %
    
    
    13.8
    %Total operating expenses
    
    
    59.2
    %
    
    
    62.9
    %
    
    
    59.5
    %
    
    
    65.7
    %Operating income
    
    
    17.5
    %
    
    
    11.6
    %
    
    
    15.6
    %
    
    
    9.2
    %Other, net
    
    
    0.6
    %
    
    
    1.2
    %
    
    
    0.6
    %
    
    
    1.2
    %Income before taxes
    
    
    18.1
    %
    
    
    12.8
    %
    
    
    16.2
    %
    
    
    10.4
    %Income taxes
    
    
    6.2
    %
    
    
    4.8
    %
    
    
    5.8
    %
    
    
    3.9
    %Net Income
    
    
    11.9
    %
    
    
    8.0
    %
    
    
    10.4
    %
    
    
    6.5
    %
 Three Months Ended June 30, 2008 and 2007
 Net Sales
 Cost of Sales
  Product Development
  -7-




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Selling and Marketing
 General and Administrative
 Operating Income
 Income Tax Expense.
 Six Months Ended June 30, 2008 and 2007
 Net sales.
  Cost of Sales.
  Product development.
 Selling and Marketing.
 General and Administrative.
 Operating Income.
  -8-




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Income Tax Expense.
 Liquidity and Capital Resources
     Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
  Operating Leases.
 Purchase Obligations.
 Tax Audit Settlements and Deposits.
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    13years
    
    
    35years
    
    
    5 years(In Thousands)Operating lease obligations
    
    $
    5,419
    
    
    $
    1,096
    
    
    $
    2,630
    
    
    $
    1,289
    
    
    $
    404Tax audit related payments
    
    
    350
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
    
    
    5,433
    
    
    
    5,433
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    11,202
    
    
    $
    6,879
    
    
    $
    2,630
    
    
    $
    1,289
    
    
    $
    404
  -9-




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Critical Accounting Policies and Estimates
  Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
 Market Risk.
   Foreign Currency Exchange Rate Risk.
  -10-




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Item 4. Controls and Procedures
    
 Part II  OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number ofShares Purchased
    
    
    Maximum Number ofTotal Number
    
    
    Average Price
    
    
    as Part of Publicly
    
    
    Shares that May Yet Beof Shares
    
    
    Paid per
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    Share
    
    
    or Programs
    
    
    Plans or ProgramsApril 1-30, 2008
    
    
    4,611
    
    
    $
    14.04
    
    
    
    4,611
    
    
    
    1,240,649May 1-31, 2008
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,240,649June 1-30, 2008
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,240,649Total
    
    
    4,611
    
    
    $
    14.04
    
    
    
    4,611
  -11-




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Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    On April 16, 2008, the Company held its Annual Meeting of Shareholders.(b)
    
    Not applicable.(c)
    
    Set forth below is a description of the proposals voted upon at the Annual Meeting of
Shareholders and the results of the proposals.
 1.
    
    Seven directors were elected to serve until the 2009 Annual Meeting of Shareholders and
until their successors are elected and qualified. The results of this proposal are as
follows:
 For
    
    
    Withheld(1) Judith A. Paul
    
    
    28,355,523
    
    
    
    69,958(2) Terrance D. Paul
    
    
    28,356,138
    
    
    
    69,343(3) John H. Grunewald
    
    
    28,354,384
    
    
    
    71,097(4) Gordon H. Gunnlaugsson
    
    
    28,370,756
    
    
    
    54,725(5) Harold E. Jordan
    
    
    28,370,956
    
    
    
    54,525(6) Addison L. Piper
    
    
    28,370,556
    
    
    
    54,925(7) Judith A. Ryan
    
    
    28,367,841
    
    
    
    57,640
 2.
    
    The appointment of Deloitte & Touche LLP as the Companys independent auditors for 2008
was ratified. The results of this proposal are as follows:
 For:   28,398,184
    
    Against:   25,720
    
    Abstain:   1,577
 (d)
    
    Not applicable.
 
 Item 6. Exhibits
  Exhibit No.
    
    Description10.1
    
    
    Incentive Bonus Plan31.1
    
    
    Section 302 certification by Terrance D. Paul31.2
    
    
    Section 302 certification by Mary T. Minch32.1
    
    
    Section 906 certification by Terrance D. Paul32.2
    
    
    Section 906 certification by Mary T. Minch
  -12-




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SIGNATURES
  RENAISSANCE LEARNING, INC.
(Registrant)Date: August 4, 2008
    /s/ Terrance D. PaulTerrance D. PaulChief Executive Officer and a Director
(Principal Executive Officer)Date: August 4, 2008
    /s/ Mary T. MinchMary T. MinchSenior Vice President-Finance, Chief Financial Officer andSecretary (Principal Financial and Accounting Officer)




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##### Table of Contents



Exhibit No.
    
    Description10.1
    
    
    Incentive Bonus Plan31.1
    
    
    Section 302 certification by Terrance D. Paul31.2
    
    
    Section 302 certification by Mary T. Minch32.1
    
    
    Section 906 certification by Terrance D. Paul32.2
    
    
    Section 906 certification by Mary T. Minch